One signature, several consequences
The practical completion certificate is the point at which the works are treated as complete for the purposes of the contract. Signing it typically releases part of the retention, starts the rectification period during which the contractor returns to put defects right, ends the contractor’s liability for liquidated damages, and shifts responsibility for insuring and running the building.
The precise consequences depend on the contract in use. [VERIFY: the specific effects of practical completion, retention release proportions and rectification period length under the contract edition and amendments in use.] What does not vary is that they happen together, on the strength of one judgement.
It is also the point at which most of the professional attention on a project stops. Consultants demobilise, the site team moves on, and the rectification period runs with far fewer people watching it than the construction phase had. That is worth planning for before the certificate is issued rather than discovering afterwards.
The pressure to sign
Practical completion arrives with every party wanting the same thing. The contractor wants release of retention and the end of damages. The developer wants to let or sell, and often has a tenant or a buyer with a date. The funder wants the asset complete. The programme has usually slipped and everybody is behind.
Into that arrives a building that is nearly finished. The question of whether nearly is close enough is answered under commercial pressure rather than technical assessment, and once it is answered it cannot be unanswered.
What a defects list does not do
The usual compromise is certification accompanied by a schedule of outstanding items. That is normal practice and it works, provided the outstanding items are genuinely minor.
What the schedule does not do is preserve your commercial position. Once the certificate is issued, damages have stopped and half the retention has gone, so the means of encouraging completion of those items has largely been spent. A long defects list attached to an early certificate is a record of what you have decided to hope for.
Judging it properly
The test is whether the works are complete apart from minor items which can be put right without significant disturbance to the occupier. Applying that test needs somebody willing to say not yet while several parties are asking them to say yes.
It also needs an assessment of what the remaining work is worth, because the sensible middle position is often a certificate accompanied by an agreed retention against specified items rather than a straight release. That is a commercial negotiation, and it needs a value attached to it before it can be had.
Sectional completion and partial possession
Two mechanisms allow parts of a building to be treated as complete before the whole. Sectional completion is planned at the outset, with the contract dividing the works into sections each having its own completion date and its own damages. Partial possession is agreed during the works, where the employer takes over part of a building that was not originally divided.
Both are useful on phased residential schemes, where early plots can be sold or let while later ones are still being built, and both change the financial position in the same way as full practical completion but only for the part concerned.
The commercial risk sits in partial possession, because it is agreed under pressure late in the job and its consequences are frequently not worked through. Taking possession of a block starts its rectification period, releases retention proportionally, and stops damages for that part, while the remaining works continue around an occupied building at a cost nobody has valued.
Where a phased handover is contemplated, it is worth establishing the mechanism and its effects at contract stage rather than negotiating it on the day the first buyer wants keys. [VERIFY: the sectional completion and partial possession provisions in the contract edition in use.]
What this means for you
Decide before the pressure arrives what your threshold is, and put somebody in the certifying role who will hold it. The person who certifies should be the person who has been valuing the works monthly, because they already know what is left.
We hold that role as employer’s agent where we are named in the contract. The retention and defects position afterwards is covered in defects liability and retention release.
Where the pressure to certify is coming from a sale or a letting with a fixed date, the honest move is to say so early and plan around it, rather than to arrive at the day with a building that is not ready and a certificate that has to be signed anyway. A commercial decision taken deliberately is defensible. The same decision taken under duress on the day is simply a loss.